Author Topic: Starting Retirement Investments for the First Time, Need Advice  (Read 3491 times)

Lady Julian

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I'm 30 years old, netting 24K a year (I'm a teacher) and I would like to start my first retirement account with Betterment. Two questions:
  • I'd been planning on going with a Roth IRA, but Betterment also offers something called a taxable retirement account. What is the difference here? I've mostly heard about Roths, so I'm not sure which I should go for?
  • How much money should I put in at once? I have about 18K in an ordinary slush-fund savings account in my bank - Do I put 10K of that in Betterment all at once, since that would move me into a lower fee bracket? Or (and my conservative, risk-averse side prefers this route) should I put in about 5K to start with, see what happens?

This is my very first post - Thanks for your advice!

BarkyardBQ

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #1 on: April 22, 2016, 12:28:19 PM »
You should utilize tax advantaged account space you have first. Roth or Traditional IRA, 401k, 403b, 457b. Taxable Brokerage account is the last place you should put money, unless it's your only option. Saving taxes will get you to FI/RE much sooner, than taking all your income home, being taxed on it, and then being taxed on the distributions and trades. You can also open IRA and Taxable accounts and Vanguard, the fees are much much cheaper than Betterment.

Does your school or district not have a 403b or 457b Deferred Compensation Plan?

http://www.madfientist.com/retire-even-earlier/
http://rootofgood.com/make-six-figure-income-pay-no-tax/
« Last Edit: April 22, 2016, 12:31:00 PM by BackyarBQ »

dandarc

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #2 on: April 22, 2016, 12:33:41 PM »
The first thing I would recommend you do, is read the stock series.  http://jlcollinsnh.com/stock-series/ 

That being said -

I wouldn't go with Betterment.  A Vanguard IRA (Roth or Traditional) will be lower cost.  You have enough money to at least get into a target-retirement fund at Vanguard.

If you're willing to disclose more information, you're at an interesting income spot with regard to the Roth vs. Traditional calculation due to the savers credit, assuming you're filing single, which your post reads like.  Do you have a 403B or 457B available through work?  Potentially some interesting strategies could be available to you.

seattlecyclone

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #3 on: April 22, 2016, 12:35:06 PM »
People around here have mixed feelings about Betterment. A three fund portfolio will work just fine for most investors, and this should not be difficult to build yourself without paying Betterment a management fee.

I recommend not starting with a taxable account. Those are usually best for people who are already contributing the maximum to their IRA (either Roth or traditional) and any workplace retirement plans.

As to whether you should go with Roth or traditional, the basic question is whether you expect your tax bracket to be higher in retirement than it is now. If you expect a higher bracket, go with Roth; if you expect a lower bracket, go with traditional; if you expect it to stay the same, pick either one. Most Mustachian early retirees will likely have a lower income when they retire, so traditional is often preferred. Given your low current income, you may actually find Roth to be better in your situation, especially if your teaching job is likely to pay a decent pension when you retire.

Do you have any tax-advantaged savings options available through your employer? Look for numbers like 401(k), 403(b), or 457. You might want to start there rather than opening your own IRA. The contribution limits for these are often higher, and many employers match contributions.

As to what you should do with your $10k, investing all at once is likely to be better than investing a little bit each month. There are no guarantees, but the odds are in your favor. If you do decide to go with a workplace retirement plan, those have contributions through payroll deductions only. Set your contribution to be most of your paycheck and spend the money out of your savings account. This is effectively "transferring" that money to your retirement account.

Jeremy E.

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #4 on: April 22, 2016, 12:46:09 PM »
I STRONGLY agree that you should definitely read JLCollins stock series,

Seeing as you don't make a lot(no offense). It might make more sense to go for a ROTH IRA or ROTH 401k(or 403b)(reading the stock series will help you decide which you think is best). As a teacher, you might even have access to a 457b plan which is one of the greatest retirement accounts in existence, that you should definitely consider. You also want to find out if your employer offers you any matches, if so you want to take advantage of it wholly. As for the money you have saved up, I'd use it to start an IRA (ROTH or traditional) and/or to live off of while you put 100% of your money into your other retirement accounts. Keep enough in your savings account to use as an emergency fund, and keep an amount that makes you feel comfortable. Some people prefer 3 months living expenses in an emergency fund, others 1 month, and others will keep no emergency fund and open a HELOC on their house to use as an emergency fund.

Lady Julian

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #5 on: April 22, 2016, 02:12:54 PM »
Sorry, I forgot to clarify: I DO have a 401K through work, but as my employer is a VERY small school, they're not able to contribute very much. I'm maxing out what I can do at work, and I'm looking to branch out on my own. I am filing single.

seattlecyclone

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #6 on: April 22, 2016, 02:15:36 PM »
So you net $24k/year, are already contributing $18k to a 401(k), and still want to save more? Well done!

Lady Julian

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #7 on: April 22, 2016, 02:51:44 PM »
Um, no I don't contribute 18K/year to my 401K. I guess I said that wrong - I'm paying as much into the 401K as the employer will match, which works out to be 62.50/paycheck before taxes, so 1500/year. Beyond that, it makes more sense to put money into an IRA, which will get a better return than my dinky 401K.

dandarc

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #8 on: April 22, 2016, 03:05:12 PM »
Your returns have nothing to do with the size of the account.  Suppose if there is a fixed 401K fee, it will impact a larger account less, but you can mitigate that by depositing more in the 401K.  You could be in the very same or even better funds in your 401K compared to an IRA, depending on what the 401K offers.  Of course, you could have worse funds available in the 401K as well.  We don't have the list of all the options at your disposal, so hard to say what is best.

Jeremy E.

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Re: Starting Retirement Investments for the First Time, Need Advice
« Reply #9 on: April 22, 2016, 04:11:28 PM »
Um, no I don't contribute 18K/year to my 401K. I guess I said that wrong - I'm paying as much into the 401K as the employer will match, which works out to be 62.50/paycheck before taxes, so 1500/year. Beyond that, it makes more sense to put money into an IRA, which will get a better return than my dinky 401K.
Most of the time it does make sense to max an IRA after you get your full employer match, as you have more control over an IRA and can choose your own fund(s). Does your company offer a 457(b)?